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Conduit Issuers for Tax-exempt Financings - Overview
Conduit Issuer Responsibilities
Conduit Issuer Policy and Procedural Considerations
Transcript PDF Slides PDF

Hello, my name is John Blakley, and I'm a Tax Law Specialist in Compliance and Program Management, in the Tax-Exempt Bonds Office of the Internal Revenue Service, known as the IRS.

Welcome, and we appreciate you taking the time to listen to the IRS webinar for Conduit Issuers of tax-exempt financings.

This is a policy and procedural module of a three-part series.

You can also review the other two modules, An Overview of Conduit Issuers, and the other which discusses Conduit Issuer Responsibilities was done by Ms. Christina Easter from our TEB Tax-Exempt Field Operations Unit.

Please keep in mind that this presentation is a part of the IRS's education and outreach efforts.

It is not intended as official guidance, and should not be relied upon as such.

This presentation summarizes some of the policy and procedural considerations that can be implemented by conduit issuers of tax-exempt financings to ensure ongoing compliance with applicable requirements.

As such, please refer to applicable legal authorities in their entirety before implementing compliance strategies related to tax-exempt financings.

In this module: We'll list some policy and procedural considerations when a conduit issuer identifies a problem with a tax-exempt financing that is not under audit.

We'll discuss elections described in Treasury regulation sections 1.141-1 for private activity bonds and 1.148-1 through 7 for arbitrage rebate.

Further, we'll discuss what can cause a reissuance and how conduit issuers can take remedial action to correct a violation, and finally, We'll provide information on how to obtain forms, publications, our Internal Revenue Manual, which is also known as IRM, and request a private letter of ruling.

Internal Revenue Code section 6001 and Treasury Regulation section 1.6001-1(a) contains the requirements for filing information returns with the Internal Revenue Service.

Maintaining adequate books and records can allow a conduit issuer to provide information needed for an audit, or Voluntary Closing Agreement Program, which is also known as VCAP.

You can find information on the TEB, known as Tax-Exempt- Bonds, Office Record Retention Requirements, on our website at

Statements regarding conflict of interest between conduit issuer and parties to tax-exempt financing can be included in the bond documents.

The Tax-Exempt Bond Offices, Field Operations Unit, we call it the FO, Field Operations, conducts examinations of tax-exempt financings issued by conduit issuers.

Tax-Exempt Bonds Compliance and Program Management Unit, known as CPM, administers the Voluntary Closing Agreement Program, known as VCAP.

If a conduit issuer identifies a violation with a tax-exempt bond it has issued, they may contact CPM to negotiate a resolution with the IRS.

If the tax-exempt financing is under audit, the conduit issuer will have to work with the tax law specialist or Internal Revenue Agent to resolve the violation.

Certain elections, with respect to tax-exempt financing, are required to be made on or before the issue date, while other elections can be made after issuance.

Treasury regulation sections 1.141-1(c) requires that elections require private business use, private payment, private security, and private loans to be made in writing and part of the bond documents.

Once the election is made, revocation of the election has to be made to the Compliance and Program Management Unit, known as the CPM Unit.

Arbitrage and Rebate elections, in Treasury regulation section 1.148-1 through 7, are also required to be made on or before the issue date.

Some of these elections include: application of actual facts rather than reasonable expectations, exclusions of earnings on a reasonable required reserve fund, or replacement fund, from available construction proceeds, treatment of a portion of an issue as a separate construction issue, payment of 1 and a half penalty, 1 and a half % penalty in lieu of rebate, and finally, treatment of a bond issue as a separate issue.

Revocation of the elections in the Treasury regulation must be requested to the Compliance and Program Management Unit, known as CPM as well.

Modifying bond documents after bonds have been issued can cause a reissuance.

If a modification occurs, the appropriate government body for the conduit issuer can approve the reissue bond by adopting a formal resolution, and filing the appropriate form 8038, using the date of the modification as the issue date.

In addition, the reissue bond must satisfy all the requirements of the Internal Revenue Code section, reissued.

See section 1000 and Treasury Reg section 1.1001-3, for more information on Reissuances.

Certain actions taken after the issue date can cause an otherwise qualified tax-exempt financing, to be non-qualified.

This may include: alternative use of proceeds, alternative use of a bond finance facility, and redemption or defeasance actions.

The issuer can correct these actions by taking a remedial action described in Treasury regulation section 1.141-12.

If a remedial action is not available, the conduit issuer may contact the Compliance and Program Management Unit, known as CPM to negotiate a voluntary closing agreement, known as the VCAP Program.

Please review our website to obtain forms and instructions to file form 8038, and form 8038T for tax-exempt financings you issue.

You'll also find other forms required to be filed for other type of tax-exempt financings, such as form 8038G for General Obligation Bonds, form 8038B for Build America Bonds, and finally form 8038TC for Tax Credit Bonds.

TEB, known as Tax-Exempt Bonds, has publications on tax-exempt related financing and issues: Pub 5005 is entitled Your Responsibilities as a Conduit Issuer.

Publication 4077, Tax-Exempt Bonds for 501(c)(3) Charitable Organizations and Their Compliance Guide.

Publication 4078, or four thousand seventy-eight, Tax-Exempt Private Activity Bonds Compliance Guide, and finally Publication 5091, or known as five zero nine one, Voluntary Compliance for Tax-Exempt and Tax Credit Bonds.

The Tax-Exempt Bonds Field Operations and Compliance and Program Management Unit, use policy and procedures in our Internal Revenue Manual, known as the IRM.

Sections of the Field Operations IRM that may be of interest to you can include, section 4.81.1, which is entitled Examination and Overview, and section 4.81.14, it deals with unagreed examinations.

Sections of the CPM Internal Revenue Manual, known as IRM that you also may be interested in, when you're in this area, is section 7.2.3, which deals with the Voluntary Compliance Program, and the VCAP Program, make it short, and section 22.42.1 deals with our Customer Education and Outreach Program.

Conduit issuers may request a private letter ruling.

Revenue procedure 2016, we usually say that that's called REV PROC 2016-1, lists the issues on which they may request a private letter ruling, and circumstances under which the IRS's or the IRS doesn't issue private letter rulings.

This revenue procedure also gives the procedure requirements to request a private letter ruling, and instructions on what information that you must send.

Tax-Exempt bonds have a presence, a big presence on their website, with lots of information to help you, as conduit issuers, to understand your responsibilities regarding any type of tax-advantaged bond.

This three-part tutorial offers a broad fundamental overview of tax-advantaged debt obligations, and has links to information on the TEB website.

The website links will allow you to further explore topics covered in this presentation, actually in all three presentations that we've done today.

You can find on the TEB website, and the IRS, our main website, look for TEB on

Once on the main website, find the information for link on the upper right-hand corner, and then select tax-exempt bonds link in the drop-down box.

This brings you to the main page for tax-exempt bonds where you'll find useful information for issuers of tax-advantaged bonds, as well as other participants in the tax-advantage bond market.

We would like to hear from you, don't be shy.

Please share your thoughts on this webinar with us by leaving your comments at

You can also subscribe to the TEB newsletter by logging onto our website and look for our newsletter.

The newsletter is also on the TEB main page.

You may be able to obtain this on the IRS's website at

This completes part three entitled Policies and, Policy and Procedural Considerations of Conduit Issuers of Tax-Exempt Financings.

Please review the other two modules as well for an overview on conduit issuers covered in part one, and conduit issuers responsibilities covered in part two, and that was covered by Ms. Christina Easter, TEB Field Operations.

We hope you found this information to be very helpful in understanding some of policy and procedural considerations related to tax-exempt financings.

Thank you for taking the time to listen.